Open any "best high-yield savings accounts" page and you will find a table sorted by APY, highest first. It is the most natural way to present the information and, for a large share of readers, it puts the options in the wrong order.
The reason is simple and almost never mentioned on those pages: interest from US Treasuries is exempt from state and local income tax. Interest from a savings account is not.
Run the numbers
Take someone in the 24% federal bracket living in a state with a 5.75% income tax. They have $40,000 sitting idle and two options in front of them.
The savings account advertises 4.15%. That interest is fully taxable, federal and state, so 29.75% of it disappears. What they keep is 2.92%.
The Treasury advertises 3.98% — visibly worse on the comparison table. But only federal tax applies, so they keep 3.02%.
The lower advertised rate wins. The table had it backwards.
The account that looks best on the table is the one that pays less. Nothing in the advertised numbers tells you that.
How much is this actually worth?
Here is where most articles would stop, having made a clever point, and let you assume the stakes are large. They are not, and you should know that before you move any money.
On $40,000 in that 5.75% state, the Treasury's edge is about $44 a year. Real, but not life-changing. In a high-tax state like California the exemption is worth more — around $103 a year on the same balance. And in Texas or Florida, where there is no state income tax to be exempt from, the effect vanishes entirely and the 4.15% savings account simply wins by about $52.
So the ranking flip is genuine and worth knowing. The magnitude, at these particular spreads, is modest.
The far larger number is the one nobody frames as a decision at all. If that $40,000 is sitting in an ordinary big-bank savings account paying 0.01% — which is where an enormous amount of American cash actually sits — then moving it anywhere competitive is worth roughly $1,163 a year. That single move is more than twenty times the Treasury-versus-savings question.
Get the big decision right first. The tax-exemption subtlety is a refinement on top of it, not the main event.
Why comparison sites rarely say this
Partly it is structural. A page ranked by after-tax return would need to know your tax bracket and your state, and a static page published once for millions of readers cannot know either. So it ranks by the one number that is the same for everybody — the advertised rate — and that number is the wrong one.
Partly it is incentive. Savings accounts have affiliate programs. Treasuries do not pay anyone a referral fee. A page monetised entirely by bank signups has no particular reason to feature the option that pays it nothing.
We should be straightforward that the same incentive exists here. We earn commissions when readers open accounts through some of our links. We are telling you the Treasury often wins anyway, because a tool that shades its math toward whatever pays best is worth nothing to you and, fairly quickly, worth nothing to us either.
When the savings account does win
This is not an argument that Treasuries always win. Three situations flip it back:
- No state income tax. In Texas, Florida, Washington and the other no-income-tax states, the exemption is worth nothing and the higher headline rate simply wins.
- A genuinely wide spread. The exemption is worth roughly your state rate times the yield. If the savings account pays enough more, it clears that hurdle on its own.
- You need the money next week. Savings is instant. A T-bill has a term, and selling early means dealing with market price. For your actual emergency buffer, liquidity is worth more than a few basis points — this comparison is for cash you are genuinely not touching.
Check your own case
The calculator below takes your bracket, your state rate, and the actual rates available to you, then ranks the options by what you keep rather than what they advertise.
Questions
Is a Treasury better than a high-yield savings account?
After tax, often yes, even at a lower advertised rate, because Treasury interest is exempt from state and local income tax. The advantage grows with your state tax rate and disappears entirely in states with no income tax.
Are Treasury bills exempt from state tax?
Yes. Interest from US Treasury securities is exempt from state and local income tax, though still subject to federal income tax. Savings account interest is subject to both.
How do I compare savings rates properly?
Compare what you keep, not what is advertised. Multiply the rate by one minus your combined marginal tax rate, leaving state tax out for Treasuries. Comparison tables sorted by advertised APY can rank the options backwards.
The figures behind this
Every number above is computed, not asserted. These are checkable, and the inputs are published so you can reproduce them:
- At a 24% federal and 5.75% state marginal rate, a 4.15% high-yield savings account yields 2.92% after tax.
- A 3.98% Treasury yields 3.02% after tax at those same rates, because its interest is exempt from state income tax.
- On $40,000, that ranking inversion is worth $44 a year.
Machine-readable: claims/headline-rate-trap.json